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Why you need a budget

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Why you need a budget

Today I’m not going to tell you that you need a budget. Shocking, because the title says so! How is that possible?!

I’m not a big fan of monthly budgets. If you set a budget and stay below budget, you are more likely to spend because your money was assigned to that budget. If you spend more than the budget, you feel bad even if it was unforeseeable. That can’t be right.

No, today I am telling you to track your spending. Do what you want, of course, but if you want to be financially free and set goals for yourself, this is the right path to walk.

Measuring is knowing.

If you don’t know how much money is coming your way every month and how much you spend, you will most likely not become financially free. To become financially free you need to get a grip on your money. Measuring is knowing.

Most people know what they earn per month. Kind of. Sometimes a bonus can be a pleasant surprise still, even if it happens every year. If you work for a boss, you probably know what to expect. If you work multiple jobs or you are your own boss, sometimes it is harder to know in advance.

Expenses on the other hand are a blurry guess for most people. Fixed expenses like rent/mortgage or the electricity bill are known but other than that I know a lot of people who just estimate and guess around. It can be a difference of hundreds of euros each month. Then there are quarterly and yearly bills that come as a surprise each time again.

Budgeting in hindsight.

From now on you are going to track your expenses from the previous month each month. It is budgeting but in hindsight.

For me I track my expenses in an Excel document. I put down everything that has entered my account in the first column. It’s my income. I include income from the shared Netflix account, payment requests and all that.

Then I make multiple columns on my expenses. You could make do with just one but more is better here. I split between different categories.

First category is for fixed expenses. This includes mortgage/rent, electricity, internet, phone service etc.

Next column is for groceries. For me it includes the supermarkets with laundry detergent and toothpaste and everything.

Then a column specially for the car. Including purchase, taxes, repairs and gas.

Up next for me is the category home. This includes all trips to the construction stores, home decor, paint, doorknobs. The whole shabam. It’s more then I like to admit.

Then there were the columns for restaurants/bars and holiday. Yeah for this year I cut then out except for the occasional take out.

Combine everything per category and then everything combined as well. Make a green box and a red one. In the green box is the cumulative income and the red is for cumulative expenses.

For me it looks a little something like this. With made up numbers for privacy.

Do this every month and you will get a clear picture of where your money is going. You can correct course without making a super strict and restrictive budget. Sometimes I see a lot of expenses in one of the columns and I course correct the next month. Also I now know that I spend a lot of money on paint and other construction market related expenses. And how much goes to waste for the car!

Know where your money is going and I am sure you will adjust accordingly. You are reading this so you are heading in the right direction anyways.

You also have a clear view on what is the absolute minimum you need to stay afloat (fixed expenses and groceries) and what you need for a comfortable life. And you know what you spend money on that is not really making you any happier and is not important to you. Don’t spend on those. You are less inclined to spend on something if you know you will have to put in on the sheet at the end of the month.

Put yourself on the right track without a super strict budget and make your way to financial freedom.

Good luck!

Elske

I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.

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